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April 2008

April 28, 2008

Two recent news articles remind us that enviornmentally superior products need to be priced right. CNN Money reports that the higher cost of organic products is a primary deterrent to many consumers. Throw in some skepticism and confusion resulting from all the hype, and only 45% of those surveyed think organic is good for them -- down from 54% two years ago. Environmental Leader's report on the National Marketing Institute's consumer trends database states that only 30% of consumers are prepared to pay a 20% premium for more sustainable products.

These are important data points. Other things (including price) being nearly equal, there is little doubt that the more environmentally-friendly products will perform better in the market. But it is going to get increasingly difficult to charge a premium for these products, especially in a period of economic uncertainty and high energy prices -- the latter likely to stay with us for a long time. This brings me back to one of my earlier arguments: Reducing a product's carbon footprint is likely to yield immediate financial returns by way of reduced energy costs and other efficiencies. AND, if the environmental superiority of the product is documented and communicated properly, it might also yield additional returns by way of increased market share. All this even before carbon emissions have been monetized correctly. If done right, the full ROI of improving environmental performance may well justify mainstream pricing for a superior product.

April 21, 2008

Will carbon ecolabels on products make a big enough difference to overall carbon reduction efforts? Our preliminary research shows that consumers are likely to take the information into consideration. In particular, there is a measurable impact on their intentions. But my concern (as yet unproven) is that it could all be a bit too much for people -- even the well-intentioned ones -- to deal with in the midst of their busy everyday lives. Michael Specter's recent essay in the New Yorker brings up similar concerns.

What I am finding through real-world projects is that carbon footprinting is something that can be used and acted upon throughout a product life cycle, and not just at the consumption stage. If we wanted to minimize a product's carbon footprint, a footprint analysis can reveal opportunities throughout the supply, consumption and disposal chain. Focusing on just the consumption stage risks missing these other opportunities. Some of the biggest carbon-reduction opportunities may be in business-to-business dealings (such as optimizing a product and its packaging together in collaboration with the package manufacturer, or working with a raw materials supplier to squeeze out waste and excessive energy use in the supply chain) as opposed to business-to-consumer interactions.

From a whole system perspective, it may actually turn out to be inefficient to leave all the optimization to the consumer, who can only choose between finished/packaged products or choose to consume less of something. There is no doubt some value in sending "signals" through purchasing decisions, and for that reason it is nice to have consumers in the loop and have them be one of the drivers in carbon reduction efforts. But what we don't know yet is how strong and coherent these signals are likely to be. So I would also want to make sure that all the pre- and post-consumer stages have been optimized as much as possible, independent of any ecolabeling.

There are significant returns to be had. Consumers may well reward manufacturers who make low-carbon products and publish the product footprints (assuming good and consistent analysis methodology). But the more immediate return from optimizing the product life-cycle carbon may be much bigger (given the cost of energy for starters). All of this still needs to be proven rigorously, but it is a good time to start thinking about the full ROI (carbon savings + financial returns) from carbon footprinting efforts.

April 02, 2008

I have been surprised at how many companies -- big and small -- are deeply interested in using sustainability metrics in their operations, internally as well as for communicating with customers. My rather unscientific sampling is partly a result of our Google ads. Just in the past month or so, we have received calls from companies and organizations that pretty much represent a cross section of the economy: small-scale farm, pizza chain, coffee house, heavy equipment rental, commercial building construction, food/beverage packaging, food processing, sewer systems, third-party logistics, high-tech/semiconductor manufacturing, electrical cable manufacturing, surfing (yes!), universities, and a few others. Some are very small operations, some are just starting up, others are well-established medium/large enterprises. But what is heartening is that everyone wants to know how to quantify their environmental performance, everyone wants to be "as clean as possible", and this is not just for marketing purposes. They really want procedures and tools that they can use. One entrepreneur told me that he wants to "develop a green culture within the company from the beginning". Now, not all of them can afford the costs involved in getting the right consulting help or software tools (even though we try hard to price them right and work with every potential customer to find the "sweet spot"), but that just shows that we need to find innovative ways to make sustainability solutions even more affordable and accessible. We need to "mass proliferate" low-cost, high-quality sustainability tools and solutions. That is how we (meaning all sustainability solutions providers) change the business world, especially the big part of the world populated by small and medium sized enterprises.